SAARC leaders can reduce expensive telecom tariffs in South Asia

July 18, 2008 (LBO) – We have been talking regional cooperation for a long time; SAARC itself is over 20 years old. There must be some real results; something that citizens can feel. Or it’s high time that we started to produce some. This article makes a modest proposal that is easy to implement and which leverages the region’s leadership in providing the lowest-cost mobile services in the world.

Much of what SAARC has done so far is cheap talk at the level of leaders and nabobs. This article proposes that the people of the SAARC be extended the privilege of cheap talk. It proposes that the citizens of SAARC countries be allowed to speak to each other at the low prices that they take for granted in domestic telephony.

Then, we can refute the cynics who claim SAARC is a useless talk shop. It will continue to be a talk shop, but now a useful one. Talk is what we do well; why not talk more and cheaply across the borders that divide the SAARC? This would be a way to make SAARC real.

Minimal manifestations of regional cooperation

It is common sense that it must be easier to do some things within a regional-cooperation area than without. If one is a citizen of a country that belongs to the European Union, one can tell: going to another EU country is different (easier) than going to a non-EU country; doing business with another EU country is easier than doing business with a non-EU country, and so on.

From the perspective of a citizen, regional cooperation will feel real if it’s easier to go to a SAARC country than to a non-SAARC country. Or in this modern age, if it is easier/cheaper to communicate with a SAARC country than one that is not.

The SAARC is beyond pathetic in terms of internal transport links. India has the best links with the SAARC countries, but just a few years ago, in 2003, the World Bank’s then Vice President for South Asia had to take a bus from Pakistan into India, because he refused to leave the SAARC for flight connections during his introductory tour.

The easiest ways to go from/to Colombo to Dhaka, Kathmandu or Thimphu are via non-SAARC hubs such as Doha or Bangkok. Part of the problem is that the logical transit points are in India, where the airports are really not set up to be effective transit hubs, though things are improving now.

The other problem is the draconian Indian visa regime that most people (other than Nepalese, Bhutanese and Maldivians) navigate only out of sheer necessity. Note that I am not suggesting that airlines should be mandated to maintain direct routes between SAARC capitals irrespective of profit (this was done in the bad old days, but with little effect), but surely, it is not too much to ask that one can travel within the SAARC without relying on external hubs?

Political relations within SAARC are not the best, obviously. So the relaxation of Indian visa formalities for the great majority of SAARC citizens cannot be expected in the short term. However, surprisingly, the only SAARC country to experience invasion by nationals of another SAARC country in the recent past, the Maldives, continues to grant visas on arrival, with no discernible ill effects other than the highest per capita GDP in the region. This should give pause to the advocates of travel constriction.

Let us see what can be done with telecom, the modality by which relationships may be maintained without actually crossing borders (thereby addressing the concerns of the opponents of visa liberalization). Telecom operators in Bangladesh, Pakistan, India and Sri Lanka are the lowest-cost mobile providers in the entire world, innovating unique business processes that have allowed the citizens of these countries to talk at extraordinarily low cost, while keeping profitability at levels that allow continued fast rollout.

Have the nabobs of SAARC addressed the problems of intra-SAARC communications in their multiple marathons of talk? They have, of course, passed multiple resolutions on the subject, but in fact, they have gone beyond that.

In a rare collective action, the SAARC countries that were members of the WTO entered an exception to the Most Favored Nation (MFN) principle in the General Agreement on Trade in Services in 1997 for “different accounting rates for different neighbouring countries covered by Telecommunication Agreements entered into by [each SAARC country] with Governments of neighbouring countries [other SAARC countries].” In pre-liberalization times, international telecom services were provided by bilateral monopolies that agreed on something called accounting rates, which determined how much one could (over)charge the other’s customers for international calls terminating in one’s country. They were opaque and lucrative.

Accounting rates, and along with them the MFN exemption, went the way of the dodo because of the fast pace of liberalization in international telecom markets. But this singular exception (which no longer has legal validity) is good evidence that the SAARC not only believes that it should be cheaper to call from one SAARC country to another than to a non-member; it has actually tried to do something about it.

What is the ground reality? Is it really cheaper?

International telecom prices

The cheapest prices from Pakistan are USD 0.03 (fixed and mobile), offered to many non-SAARC destinations, including the US and Hong Kong China. The lowest SAARC prices are to Bangladesh, USD 0.12 (m) and India, USD 0.12 (f). The cheapest intra-SAARC price is four times that of the cheapest extra-SAARC price.

The cheapest prices from Sri Lanka are USD 0.10 (m) and USD 0.21 (f); they are not offered to SAARC destinations. The lowest SAARC prices are USD 0.14 (m to India) and USD 0.32 (f to most SAARC). The neighboring SAARC countries cost 40-50 per cent more than the distant USA.

BSNL, the dominant fixed operator in India makes an exception for one SAARC country, offering its lowest price of USD 0.17 to Sri Lanka. This is the same price offered to the US, UK, and Canada as well. All other SAARC countries are charged USD 0.28, which is considerably higher than the prices even to South East Asia. On the mobile side, no such exceptions are made: lowest prices to non-SAARC are USD 0.15, while SAARC pays an extra 50 per cent surcharge (USD 0.22).

It was possible to locate price information only for mobile in Afghanistan, which has a competitive mobile market but an almost moribund fixed operator. Here, Roshan, the major mobile operator, appears to treat Asia the same, offering a price of USD 0.49 to the SAARC as well as other Asian countries, which is lower than what it offers to more distant destinations.

Maldives and Bhutan, the two micro states, have mobile duopolies and fixed monopolies. Maldives offers the lowest prices to destinations such as Singapore and China (USD 0.23 f and m). Lowest prices to SAARC are USD 0.30 (f and m), indicating a significant surcharge. Bhutan offers the lowest price of USD 0.31 (f and m) to the country’s most important trade and political partner, India, and charges the rest of the SAARC USD 0.59, almost double. The “SAARC-less-India” price is higher than what is charged for Thailand (USD 0.48, f and m).

Bangladesh has many mobile and fixed operators but maintains a de jure international monopoly that is in the process of being changed into a joint, regulator-managed monopoly. It was reported to have more bypass than legitimate traffic; the fixed monopolist also offers VOIP based lower price services in order to fend off the bypass threat. These facts make the utility of published rates a little problematic. However, according to published prices, SAARC and nearby South East Asian countries enjoy lower prices than to other locations.

In Nepal, where the least reforms have occurred, the absolute lowest published prices are offered to India; the next best prices are offered to SAARC countries and much higher prices to non-SAARC destinations. It is possible that the real prices from bypass operators deviate significantly from the above.

So, it seems that only Nepal takes SAARC seriously. But appearances can be deceiving. Nepal, not having begun its reforms, is still setting international prices using political criteria. It is not a good guide for collective action. Even the data are questionable, given the likely prevalence of bypass.

Understanding international prices

In the countries where reforms have gone the furthest, Pakistan, India and Sri Lanka, costs of international calls are determined by the termination charges imposed by the foreign operators who receive the calls. Domestic competition determines whether the lower costs are passed on to customers.

Prices to the US and Hong Kong China are low because those markets are highly competitive and the governments there do not attempt to keep termination prices artificially high. Pakistan offers a fixed/mobile minute to the US and Hong Kong China, among others, at the extraordinarily low price of USD 0.03. Sri Lanka comes next with a mobile minute to the US and Hong Kong China at USD 0.10, followed by India at USD 0.15 for a mobile minute to the same countries.

It is unlikely that the US and Hong Kong operators charge higher prices from the other SAARC countries. Most likely, these SAARC operators do not pass on the low costs to their customers because of the lack of competition in the local markets. The fact that Indian and Sri Lankan mobile operators offer lower retail prices to the cheap destinations than do their fixed counterparts supports the above explanation. Competition is greater in the Indian and Sri Lankan mobile markets than in the fixed markets. Therefore, the mobile operators pass more of the savings on to their customers.

The modest proposal

Two actions are needed to make SAARC real to the citizens of the constituent nations, at least to a degree, by ensuring that calls within SAARC are cheaper than calls to non-SAARC destinations.

First, the forthcoming SAARC Summit in Colombo must direct its regulatory authorities to lower termination charges for SAARC originated international traffic, ideally to domestic levels. This would mean, for example, that Bharti Airtel must pay Sri Lanka Telecom approximately USD 0.015 only to terminate a minute on its network. That also means that the government of Sri Lanka must exempt SAARC originated traffic from the universal-service levy (which is being collected without any use being made of it anyway).

There is a problem with the above recommendation: it violates the General Agreement on Trade in Services, if the lower termination prices and the exemption from the universal service levy are limited to SAARC countries. This was, however, the unrealized spirit of the unimplemented MFN exemption the SAARC members insisted on back in 1997.

There are two ways around the problem:

Charge domestic termination charges from all incoming international calls and exempt international calls from all levies. This will eliminate the bypass business at one stroke and end the corrosive effects of the black money it generates.

If that is too radical a move, the regulators can at least insist that operators from SAARC countries seeking to terminate traffic in other SAARC countries must be offered the lowest termination charges on offer. This will not bring down intra-SAARC call charges to domestic levels except perhaps in the case of calls to Pakistan, but it will at least eliminate the current SAARC surcharges.

The above analysis showed that low termination charges are not enough by themselves to bring down retail prices. In the countries lacking in domestic competition (all except Pakistan, India and Sri Lanka), it would also be necessary to compel the operators to pass on the savings from lowered termination charges to their customers.

If these two relatively simple actions can be taken at the SAARC Summit, we will make more progress toward making SAARC real for its people than all the declarations combined. It would, indeed, have been a useful talk shop that broke the monopoly on cheap talk, currently enjoyed by the leaders and the nabobs of SAARC. And once the people start talking and interacting and doing business, who knows what could follow? Real regional cooperation, even?

Rohan Samarajiva is Executive Director of the regional ICT policy and regulation think tank, LIRNEasia (www.lirneasia.net). Previously, he served as Director General of Telecommunications of Sri Lanka and assisted the Government of Sri Lanka liberalize the country’s international telecom market. He convened the first meeting of the South Asian Telecom Regulators Council in Sri Lanka (1998) and participated in formulating the Action Plan that was adopted at the First SAARC Communication Ministers’ Meeting (1998). He was a member of the intergovernmental joint study group that in 2003 developed the foundational document for the India Sri Lanka Comprehensive Economic Partnership Agreement that is to be signed on the sidelines of the 2008 SAARC Summit.

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